New Red Tape for Rental Income (Category F)

In our contemporary world of comprehensive information sharing, gone are the days when a property owner could quietly rent a villa or apartment without reporting to the Tax Authorities. With 2015 tax reforms new reporting requirements were introduced for landlords who have rental income under Category F (long term rentals) that assure that they pay any tax due. Long term rentals include residential leasing as well as renting out commercial property or land.

New reporting obligations

a) “Modelo 2″ – Registration of Rental Contract

Mandatory Rental Contracts must be reported via the filing of Model 2. This form identifies the parties, the property, the price and the terms of the agreement.

b) On-going Electronic Rental Receipts

Electronic Receipt Forms must be issued in Portuguese on a monthly basis in duplicate. Reported via the Finanças website, copies are issued to the tenant with a second copy retained for the landlord’s records. Only seniors (>65) are exempt.

c) Annual Rental income Summary

In January following the tax year, landlords exempt from issuing electronic receipts must declare an annual summary of rents received via Model 44 (“Comunicação Anual de Rendas Recebidas”).Existing reporting requirements have not eased. The annual personal income tax declaration (“IRS”) still necessitates completion of Annex F. Any expenses must be accompanied by original invoices that include both the name of the landlord and the corresponding tax number.

Other compliance measures

In an effort to entrap non-compliant landlords, utility companies must now report periodically consumption data of supposedly empty villas and apartments to the Tax Authority (“AT”) to verify whether or not there is effective occupancy.

Tax incentives

While housing tax breaks for mortgage interest have been gradually disappearing in recent years, credits for tenant-declared rent remain intact. In order to receive this tax break, the tenant must reveal the Landlord’s fiscal number.

Conclusion

On the positive side, demand, price and other underlying conditions have improved significantly in recent years in the Rental Market. However, with regulatory regulations firmly in place, landlords will now need to make sure that they are fully compliant with compulsory bureaucratic procedures to be enforced by the Tax Authority (Finanças).

The information was presented by Eurofinescocompany – the expert in Fiscal & Expatriate Services